Intricacies of on-demand model for software distribution discussed at industry confab

There is a future for "Web 2.0" in the enterprise, said M.R. Rangaswami, general partner of Sand Hill Group, in opening the group's annual Software 2006 conference for technology industry leaders.

Rangaswami cited wikis, as shared documents, and podcasts—audio programs downloaded to Apple iPods or PCs—as Web 2.0 innovations that add value to enterprise software. Thus, tools for producing podcasts will take their place alongside interactive and self-service Web sites as new channels to customers.

But a major conference theme focused on how the software industry should adapt to the emerging hosted software-as-a-service (SaaS) model—also called software on demand, and popularized by CRM vendor Salesforce.com. As of yet, few other enterprise software vendors have succeeded with true on-demand.

"It's not about the sales force or pricing alone—every aspect of the company changes," said Ray Lane, a general partner with Silicon Valley venture firm Kleiner Perkins Caufield & Byers, and a former principal at Oracle. He spoke of lessons from Oracle, when it introduced a hosted service called Oracle Business Online. "We didn't see it as a service business," he said.

Vendors looking to offer on-demand software also must adjust to cash-flow changes that follow from the transition from traditional software licensing to the subscription model.

Jnan Dash, CTO of Sonata Software, said product-development models also change due to frequent and incremental update releases. Finally, Deborah Magid, director of software strategy for IBM's Venture Capital Group, maintained that existing vendors must be prepared to service customers who prefer both models.